Alan Guebert: Dairy’s dive into the unknown

It’s one of American agriculture’s best truisms: Only six people in the world understand U.S. dairy policy and none of the six milks cows.

It’s not true, of course. Only four people understand U.S. dairy policy.

And soon it’s about to get worse.

Under the just passed Senate Ag Committee Farm Bill, two of dairy’s four operative policy pillars – the Milk Income Loss Contract Program (or MILC) and the Dairy Product Price Support Program – would be replaced by two new programs, the Dairy Production Market Protection Program and the Dairy Market Stabilization Program.

If the names sound confusingly similar, don’t worry, the proposed changes are clearly far more confusing than the programs they’d replace.

For example, the voluntary Dairy Production Market Protection Program is designed to “protect producer margins equal to the difference between the all-milk price and a national feed cost,” according to a Senate Ag Committee description.

That means dairy farmers will be able to sign up for “margin insurance” that provides “a $4 [per hundredweight of milk] margin that will cover a fixed 80 percent of the highest annual milk production in the three years prior to (the new law) going into effect.”

No, I’m not being obtuse; that’s how the proposal is explained by its main promoter, the National Milk Producers Federation, a group that claims to actually understand U.S. dairy policy.

The other part of the Senate’s overall plan, collectively called the Dairy Security Act, is the Dairy Market Stabilization Program.

That’s a long name for supply management. If dairy farmers choose to join the insurance part of the program, they must agree to either cut production or have their milk check cut “during any month that the stabilization program is triggered by extremely tight margins…” to attempt to bring milk supply into balance with demand.

This was the part of the House Ag Committee–approved Farm Bill last year that Speaker John Boehner called “Soviet” agriculture. House handicappers point to that objection as a reason the Speaker kept the 2012 bill from a full House vote last year.

Six months has not changed him or the Senate Farm Bill’s dairy provisions; both are the same as last year, although the full Senate has yet to vote on the entire legislation.

And six months has not changed the House Ag Committee which continues to include the Dairy Security Act in its working draft of 2013 Farm Bill. Its champion, Collin Peterson, D-MN, the former House Ag Chairman and now Ranking Member, wants it in the Committee bill that began its journey to the full House May 15.

Peterson’s plan, however, has competition in both the Committee and the full House. A second, similar dairy “reform” effort – that includes an insurance scheme like DSA but not a mandated supply management kicker – is gaining bipartisan support and, according to some Hill handicappers, the Speaker’s nod. As such, this plan, called Goodlatte-Scott, may make the final bill, not Peterson’s.

Like all things related to U.S. dairy policy, however, the bottom line to either of these plans is that, honestly, there is no bottom line. No one knows what either scheme – insurance with supply management; insurance without supply management – means to individual dairy farmers.

One big reason is that proposed programs’ costs and insurance payments are national in nature when almost everything in dairying – feed prices, forage prices, fluid milk prices – are local and regional.

Another reason is that it’s impossible to predict how many dairy operations and, more importantly, how many cows they own, would need to participate to make either policy effective.

Equally unknown is what either shift means for retail milk, cheese and yogurt prices.

But, hey, it’s U.S. dairy policy. Under the best of circumstances, only six – OK, maybe three or four – know what all this means and none are in Congress.